European credit markets continued to widen on Thursday morning.
The main iTraxx index of investment grade borrowers’ CDS —whose movements are often led by the financial sector — flirted around the psychologically important 200bp level, having closed the previous night at 193.5bp on growing concerns about the financial sector.
The question for some in the market was whether systemic risk was back and on the rise once more. Driving worries was ongoing fallout from HSBC’s unexpected cash call earlier in the week as well as mounting concerns about GE’s ability to defend its triple-A credit rating.
Willem Sels, a credit strategist at Dresdner Kleinwort said he believed sentiment could see spreads widen in the CDS market for the weaker corporate credits.
Overnight, US credit markets closed virtually unchanged on the investment-grade index, but wider on the more speculative indices. The Japanese credit derivatives index closed 5bp wider at 511bp.
The Markit iTraxx Crossover index of 50 mostly junk rated borrowers’ CDS – a barometer of sentiment towards corporate credit- remained high on Thursday and trending wider. In early morning trade the index was quoted at 1120bp. It had closed the previous night at 1118.5bp after setting a record high of 1140.5bp in the day.